Market segmentation is a key element of marketing and it enables interaction between marketing and production of a firm, which favors both the customers and the business. In this paper, a stochastic optimal control model is developed in which, the state of the inventory system is stated as Ito stochastic differential equation in segmented market approach. First, we consider a single source production and inventory problem with multi-destination demand where demand from all segments depends upon single inventory warehouse. Then, we consider a multi-destination production, inventory and demand problem involving segment-based production and inventory points corresponding to each market segment. This way demand from each segment can selectively reach each target inventory source. Both the problems are discussed and solved using Hamilton-Jacobi Bellman equation.
Determination of Optimal Control policy for a Stochastic Production-inventory Model in Segmented Market
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